Lufthansa needs a government bailout. It will come at a price

Europe’s leading global airline group held its first virtual annual general meeting on Tuesday, unveiling a €1.2 billion ($1.3 billion) first quarter loss and painting a bleak picture of the outlook for global aviation, which has been brought to a virtual standstill by the coronavirus pandemic.

Lufthansa(DLAKY) declined to answerquestions from shareholders regarding details of its bailout discussions, according to Bloomberg. It said last week that the Swiss government had agreed to guarantee 85% of a $1.5 billion loan package for its Swiss carriers. The group also owns airlines in Germany, Austria and Belgium.

German weekly Der Spiegel and Bloomberg reported Friday that Lufthansa is negotiating a €10 billion ($10.8 billion) bailout with Germany that would give the government 25.1% of the company and a seat on its supervisory board.

Lufthansa declined to comment on the reports. But the company said in a letter sent to staff on May 3 and shared with CNN Business that it believes talks “can be brought to a quick conclusion.”

“The support of the German government would be a decisive step for our future viability,” the executive board wrote in the letter. “Competitiveness and investment capability continue to be important prerequisites for this.”

Analysts are worried that government interference could hamper Lufthansa’s ability to quickly execute a planned restructuring program, which would trim its fleet by 13% and could result in as many as 10,000 job cuts. About two thirds of its staff, or more than 80,000 people, are already on reduced working hours.

“We therefore now need government support, but we do not need government management,” he told shareholders via video conference.

Adding a “political component” to Lufthansa’s board will make things much more difficult because history has shown that decisive action is the best way for an airline to survive a crisis, said Daniel Roeska, a senior research analyst at Bernstein.

“The bigger strategic worry is how long the government influence will be there,” he added. “We would hope that investors would also get a chance to participate in an equity raise to demonstrate their support for the company.”

Strings attached

Several major carriers in Europe and the United States have sought investor funds and government bailouts to survive a mounting financial crisis brought on by travel restrictions to curb the coronavirus pandemic.

These have come with conditions, including agreements by carriers to cut carbon emissions and a temporary prohibition on layoffs among US airlines. German Chancellor Angela Merkel said last week at the Petersberg Climate Dialogue that governments responding to the pandemic with economic stimulus packages should not pull back from climate protection goals.

Budget carrier Norwegian Air said in a statement Monday that it qualified for state aid of 3 billion Norwegian Krone ($288.7 million), after lessors and bondholders agreed to convert nearly $1 billion of the company’s debt to equity and shareholders gave it the go ahead to issue more stock.

French state-backed loans amounting to €7 billion ($7.6 billion) given to Air France-KLM(AFLYY) last month included new commitments to cut absolute carbon emissions in half by 2024 on its domestic network, compared with 2019. This will involve reducing capacity on that network and replacing half of its short and medium-haul fleet with less carbon intensive planes, according to a spokesperson.

A spokesperson for Lufthansa told CNN Business last week that capacity adjustments as a result of the coronavirus crisis are accelerating the phasing out of older aircraft with lower fuel efficiency. But “crisis management” means that future investments, such as into sustainable aviation fuels, will be more difficult.

“If we are to continue our broad commitment to climate protection in the future, it is crucial that we regain our economic strength as quickly as possible,” the spokesperson said.

Lufthansa is burning a hole in its cash reserves at a rate of €1 million($1.1 million)per hour, Spohr said Tuesday. “All of our efforts are being annihilated by a single global event. No one could have foreseen this outcome,” he said.

Europe’s top airlines have announced that as many as 35,000 jobs could be lost between them, as they shrink their businesses for a world in which people fly less. The latest — Virgin Atlantic — said Tuesday that it would cut over 3,000 jobs from its workforce.

“People’s travel behavior will change, both in terms of leisure and business travel. As a result, global air transport will have to restructure itself,” Spohr said.